If you’re looking for dividend stocks to buy, you want to look for some key factors: a stable and rising dividend, a sustainable payout ratio, and ideally a business with a competitive moat. One company that ticks the boxes is Tractor Supply Company, a retail chain that sells products for home improvement, agriculture, lawn and garden maintenance, and livestock, equine and pet care.
It currently offers a 1.63% dividend yield and has a payout ratio of just 37%, meaning there’s lots of room to grow. And history says it will. In the past 12 years, the company’s dividend has grown by over 20x.
As the trend towards rural living gains further traction, Tractor Supply is primed to benefit further. For evidence of how well the company is doing, we examined the last 12 quarters, and discover year over year gains every single quarter without fail. Management clearly has a good handle on costs too because operating income was in the black every single quarter also.
And analysts are betting the company keeps growing steadily over the next few years. If that’s indicative of a secular trend, Tractor Supply is a company to hang onto for the long-term. It has all the hallmarks of a company with a competitive moat and for dividend investors has an abundance of cash flows to cover interest payments on debt as well as pay out a generous and rising dividend to loyal shareholders.
Altria is one of the world’s largest producers and marketers of tobacco and cigarettes. Its primary brands include Marlboro, Black & Mild, John Middleton, and Nat Sherman. The company also has a 45% stake in beer maker Anheuser-Busch InBev, and owns wineries and vineyards.
For dividend investors, what’s attractive about Altria is its 8.52% dividend. Even if that payout isn’t sustained, a 30% chop would still make the company’s dividend highly compelling at close to 5%.
Obviously Altria faces a huge uphill battle because its core product line – selling tobacco products – faces so much friction from better health awareness among consumers to higher taxation as well as regulatory restrictions. With that said, Altria has already begun to pursue a business strategy to sustain revenues and grow them long-term, including:
- Diversification into non-tobacco products: New products such as e-cigarettes, vaporizers, and smokeless tobacco. This will allow the company to tap into new revenue streams and maintain its growth trajectory.
- Market share growth through acquisitions: Management is acquiring companies that provide exposure to different products, such as its stake in Anheuser-Busch InBev.
- Cost optimization and efficiency improvements: Even if its core business is declining, cost-cutting preserves cash flows to finance other business initiatives.
- Strategic partnerships and collaborations: Altria partners with and has taken stakes in other firms, such as Cronos, to expand its customer base and offer additional revenue sources.
When we calculated the prospects for Altria, not only was the dividend compelling but we assesses as much as 33% upside on the share price also to fair market value.
Apple has a modest dividend yield of just 0.63% but don’t let that fool you into thinking this won’t be a great long-term play for shareholders. A handful of the many factors that support buying Apple includes:
- Competitive Moat: Apple has a strong brand and a moat so large it’s virtually indestructible now. It’s barely possible to operate from one day to the next without a phone and that means you have two realistic choices, Android or Apple. As one of the two titans, Apple has a predictable revenue stream for the foreseeable future.
- App Store Ecosystem: The company’s App store has a large, active user base that continues to grow, providing a stable platform for both developers and consumers. The app store also generates significant revenue for CEO Tim Cook’s firm through app sales and in-app purchases.
- Optionality Around Future Technology Investments: Whether an Apple Car or some other technology sits on the horizon, you can be confident Apple has the deep pockets and innovative culture to finance the next multi-billion dollar revenue stream business that its loyal customer base will adopt in droves.
- Cloud Business: iCloud provides a stable source of recurring revenue and growth potential as more consumers and businesses adopt cloud services. It’s highly sticky once a customer has onboarded.
- Strong Financials: The Cupertino headquartered company has a fortress balance sheet and generates significant cash flow, which provides the company with financial flexibility to pursue future growth opportunities and return value to shareholders through dividends and stock buybacks.